July 9, 2014

An Unsustainable Real Estate Bubble Is Inflating

The Rakyat Post reports on Canada. “Demand for high-end real estate in Canada continues to rise as low mortgage rates and international buyers spur demand and boost prices for million-dollar homes. Sales of houses valued at C$1 million and more in Toronto, Vancouver, Calgary and Montreal climbed 32% in the the first six months this year over the same period in 2013, according to Sotheby’s International Realty Canada. ‘People are realising that a big chunk of their net worth is in real estate and they’re renovating to increase that. You also have a lot of wealthy international buyers,’ said Ross McCredie, CEO of Sotheby’s International Realty Canada.”

“Foreign interest in Canadian luxury housing will remain strong in its largest cities as the removal of the immigrant investor programme failed to slow sales this year, the report said. The programme, which helped foreigners immigrate to Canada if they were worth at least C$1.6 million and would invest C$800,000 in the country, was terminated in February.”

From Global News. “A report shows many within one influential group who are ‘concerned that an unsustainable real estate bubble is inflating.’ Who still harbours such notions? Not U.S. investment banks, or European economists. It’s Canadian lenders. A survey of risk professionals across Canada’s lenders found 68 per cent said they were ‘concerned’ when asked if about the possibility of a property bubble forming in the housing market.”

“The FICO survey was published the same day Moody’s cut its outlook for the domestic financial sector to ‘negative’ from ’stable.’ That gloomy revision stems from Moody’s new view that Ottawa wouldn’t be so quick to act to bail out Canadian banks and credit unions should there be crisis such a housing crash.”

The Globe and Mail. “Toronto-Dominion Bank still expects a soft landing in Canadian housing, and predicts the shift to a buyer’s market over the next 18 months. That matches what many other observers project. ‘As home buyers have more choice, they will also have more bargaining power and price pressure will ease,’ economist Diana Petramala said, citing softer demand and more listings. Her take on the condominium market is interesting as ‘the implications of overbuilding are already starting to be felt.’”

“Condo resale listings have doubled in some cities, and there’s also an ‘ample supply’ of new but unoccupied units. This is already a buyer’s market, with just modest price growth, said Ms. Petramala, who expects condo prices to fall by about 2 per cent next year and who cites the 135,000 units now under construction. ‘The economics of investing will likely continue to deteriorate with the rental market well supplied, the rental vacancy rate rising and rents stagnating,’ she said. ‘Meanwhile, softer conditions in the condo market will eventually have knock-on effects to the single-family home market.’”

Mortgage Broker News. “Brokers are once again venting their frustration with the discrepancy between appraisal prices and sale prices of homes; though it isn’t the appraisers’ fault, according to one broker. ‘The value of properties is one of the most frustrating things I’ve faced in my business; a lot of times clients engage in bidding wars and in many cases the offer comes in and it is well above the appraisal value,’ Christine Xu of Mortgage Architects told MortgageBrokerNews. ‘Many people are over-paying for homes.’”

The Times Colonist. “Victoria’s real estate market typically peaks in May, but those involved in the buying and selling of homes in the region say May bled into June this year as the first half of 2014 finished strong. ‘It’s definitely been busy. Most agents I’ve been talking to are busier than they have been in years,’ Victoria Real Estate Board president Tim Ayres said. ‘Housing prices have come down in the last few years, and all that’s come together to [suggest] it’s not a bad time to buy or sell.’”

“‘[Buyers] are not willing to compromise on higher prices, and for those sellers not willing to come down to market prices, there’s little tolerance among buyers,’ said Nicole Burgess of Pemberton Holmes Real Estate. ‘But good product in a good area at market value — it will sell.’”

The Pique News Magazine. “The average overall sales price for the first quarter of the year in Whistler was roughly $644,000, down from just over $827,000 in the same period in 2013. It should be noted, however, that the average sales price can fluctuate dramatically in Whistler due to the small number of transactions in each quarter. RE/Max agent Ann Chiasson attributed the average sales price drop partly to the Phase 2 condo market, which has seen a significant decline in value, she said.”

“Chiasson sees Whistler’s continued reliance on the regional buyer as a sign ‘that we’ve hit a price point that appeals to people who live here.’”

The Brooks Bulletin. “During the community information meeting in Bassano, the mayor dismissed allegations from a former councillor that the town is dying and broke. During the meeting which was held to explain how Bassano’s municipal tax dollars are spent, former councillor Ed Maurer said after six years on council he can stand by the fact that the two things the town hasn’t got are land and water. ‘The Town of Bassano is a dying community. Look at the housing. How much is it worth today as it was five years ago? Property value rates are in the tank,’ said Maurer, who failed in his attempt at re-election in October’s municipal election.”

“But mayor Tom Rose says none of that is true. ‘I’m sorry Ed. I don’t agree with you. We’re not broke. We have bills to pay and debentures to pay, yes. But I’m not prepared to move away thinking that we’re destitute and we’re flat broke. That’s just not the case,’ Rose told Maurer. ‘We could not collect enough property tax in town to do everything that needs to be done. Every community in the province, every community in Canada is under the same constraints of trying to get things done,’ he added.”

Bits Bucket for July 9, 2014

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